Capital flight from Russia slowing: Central Bank

AndreyOstroukh

MOSCOW--Capital flight from Russia has slowed recently and is expected to shrink further before turning into a net inflow in 2017, the head of the central bank said Monday, while saying inflation remains a concern.

More than $60 billion drained from Russia in the first quarter of this year--nearly as much as for the whole of 2013--with the bulk of the outflows in March when households rushed to buy foreign currencies, anticipating a slump in the ruble on the back of Western-nation sanctions, designed to punish Moscow for the annexation of Crimea.

Net capital outflows declined to $8.8 billion in April and to $7.4 billion in May, said Bank of Russia Governor Elvira Nabiullina; still, the bank expects Russia to lose up to $90 billion in net outflow this year, which seems to be an "optimistic" forecast.

In the next two years, the bank expects net capital to decrease further before transforming into a net capital inflow, she added.

Commenting on inflation--the central bank's primary focus--Mrs. Nabiullina said rounds of monetary tightening in March and April have yet to have a full impact on curbing price growth, and there is a high risk that the rate of inflation may exceed 6% by the end of the year.

Earlier Monday, the central bank kept interest rates unchanged but said that a rate increase is possible if inflation remains elevated. In May, consumer prices rose 7.6% on the year, which is above the central bank's key rate of 7.5%.

Mrs. Nabiullina said that political uncertainty related to the Ukrainian crisis and its impact on the Russian economy poses risks for inflation and the ruble, which has experienced periods of volatility recently.

The Russian currency is expected to stabilize later this year although the disruption of gas supplies to Ukraine may add to weaken it, Mrs. Nabiullina said.

Despite the recent tightening of monetary policy, the bank expects growth to accelerate to 0.9% next year from 0.4% this year. In 2016, the expansion in gross domestic product is expected to more than double to 1.9%.

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